In focus today
Today we get CPI numbers out of the US, UK, and Sweden.
In the US, we expect both headline and core CPI to come in at 0.2% m/m seasonally adjusted. The release is the second to last before the next FOMC meeting in September, and the Fed will undoubtedly keep close watch of the figures. The inflation data are released at 14.30 CET.
In Sweden, we get July inflation data at 8.00 CET. We expect July inflation to continue to print below the Riksbank’s current inflation forecast as per the June Monetary Policy Report (MPR), with our forecasts of CPIF at 1.4% y/y and CPIF excl. Energy at 2.0% y/y being 0.4 p.p. and 0.2p.p. below the MPR, respectively.
We expect CPIF excl. Energy to print below 2.0% for the remainder of the year, which adds pressure on the Riksbank to continue cutting its policy rate. Today’s figure will be important input ahead of next week’s meeting, where markets are pricing 28bp of cuts, whereas we forecast a 25bp cut down to 3.50%. After that, we expect two more cuts for 2024 but note that markets are discounting 25bp cuts at each remaining meeting this year (September, November and December).
In the UK CPI inflation is due at 8.00 CET, where analysts expect headline to come in at 2.3% y/y (prior 2.0% y/y), whereas core inflation is expected to stand at 3.4% y/y (prior 3.5% y/y).
Overnight the Q2 Japanese national accounts will be released. It shall be interesting to see if growth has come back on track following three weak quarters. Preliminary data suggests it has, although private spending has likely remained weak.
Economic and market news
What happened yesterday
In the US, yields across the curve dropped and equities gained with the technology heavy Nasdaq leading the way, as markets viewed a softer-than-expected PPI print as dovish ahead of today’s CPI print.
Market pricing for the coming September FOMC meeting also changed slightly, with markets now seeing a marginally larger probability of a 50bp cut in September than a 25bp cut. However, it is worth noting, that pricing has been very volatile lately given last week’s surge in recession-fears.
What happened overnight
The Reserve Bank of New Zealand cut its cash rate by 25bp to 5.25%. Market pricing was pointing towards a cut, whereas consensus amongst analysts had been more divided and leaning towards an unchanged cash rate decision. As such the New Zealand dollar is trading lower this morning against the US dollar (NZD/USD), down around 1% at 0.602.
In Japan, Prime Minister Fumio Kishida announced he would step down, as he will not seek re-election this September as president of the Liberal Democratic Party (LDP). As the LDP is by far the dominant party in the current two-party coalition government, the next leader of the party looks set to become the country’s next Prime Minister.
